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Puerto Rico files for biggest ever U.S. local government bankruptcy

reuters.com

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Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#431

Post by lukas099 »

wonderwonder wrote: post #313
myrandomcomment wrote: post #295

Earlier quoted context omitted.

Sorry but what you are saying is since people are too stupid to understand the contract they signed and to do some math it is the companies fault? My wife and I at one point were in the hole nearly 1m. The crash put my house way under and the job money fun time went away. It sucked. You know what we did. We canceled the cable TV, we stopped eating out. We watched every penny. I work jobs I hated, hated, hated. We got…

The companies are more than capable of doing the math as they are signatories on the same contract. They interest rate they charge on the loaned money is based on their own internal algorithm that determines the risk of default on a particular borrower. Risk is priced into the loan. I am glad you and your family were able to work your way out of the debt you found yourself and I commend you for it. Many others are no…

>they should not be ashamed or made to feel stupid for taking advantage of a legal option that has been priced into their loan via their interest rate.

This was well-said. Without the risk of default the loan would be worthless for the lender.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#432

Post by rubber_duck »

vkou wrote: post #10
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

>If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money.

Except your pension fund probably lent them money too - how would you like it if you lost your pension because they decide to default ? This is maybe less true in the US but in EU mandatory pension funds are basically proxy for buying government bonds/funding government spending with a hope they will pay out in the future.

I agree theoretically - but the reality is people don't like to see huge defaults - it breaks confidence/trust - and lower trust increases cost/slows down growth and this is not politically acceptable - therefore politicians do everything they can to eliminate corrections and create distortions to preserve confidence.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#433

Post by mooseburger »

mgbmtl wrote: post #75
jcranmer wrote: post #22

Earlier quoted context omitted.

Yes, being a state would solve some of these fiscal issues. It's even been discussed for the past few years that this debt situation might be the thing that pushes Puerto Rico to actually become a state. The major problem is that Puerto Ricans don't actually want to become a state. In the various referendums, the majority generally goes for status quo, followed by statehood, followed by independence. In 2012, the ref…

Just curious: what's the main argument against statehood? Federal taxes?

Puerto Rican here. Basic dignity I think. We should be an independent country, but most Puerto Ricans are frightened of independence.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#434

Post by SEJeff »

zanny wrote: post #238
blackbagboys wrote: post #211

Earlier quoted context omitted.

I think the United States would happily not deal with Puerto Rico and it's tens of billions of dollars of debt, but almost no one in Puerto Rico wants to be 'free' (independent).

Puerto Rican statehood and / or independence is not up to the citizens of PR by themselves, its up to the whole of the US. The reasons for the civil war demonstrate why state / territory autonomy are subservient to the will of the majority.

Yup, like Lord of the Flies, and in specific:

https://en.wikipedia.org/wiki/Tyranny_of_the_majority

This is also why the Electoral College exists, as annoying as it can be, it makes sense.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#435

Post by cnnsucks »

vkou wrote: post #205
cnnsucks wrote: post #95

Earlier quoted context omitted.

Well that's not the precedent. When these mismanaged governments finally throw in the towel and hand the reins over to grownups what happens is the pensions and retiree benefits get cut. Detroit just had this happen after the state stepped in and dealt with that mess. Cleveland is in the process of cutting benefits before it goes bankrupt. CalPERS cut pensions last December for retirees from Loyalton. Same thing in t…

> When these mismanaged governments finally throw in the towel and hand the reins over to grownups what happens is the pensions and retiree benefits get cut. What makes it appropriate to cut obligations to creditors we call pensioners, but inappropriate to cut obligations to creditors we call 'bondholders'? (The answer is, obviously, that our politicians are quite happy to push our elderly under the bus, in order to…

"but inappropriate to cut obligations to creditors we call 'bondholders'?"

The part where I said bondholders should be held harmless is a fiction inside your head. When the gears finally strip the bondholders in these cases (Detroit, GM, etc.) take epic baths, and I don't shed any tears for them either. $7 billion in bondholders’ obligations in Detroit were erased, for example.

So I suppose there is little difference between supposed "creditors we call pensioners" and actual creditors; everyone gets wrecked.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#436

Post by marcosdumay »

taway_1212 wrote: post #430
vkou wrote: post #10

Earlier quoted context omitted.

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

It's close to saying that, as a shopkeeper, sometimes you get robbed, which is the cost of doing business you charge your customers for - and hence the robbery is ok.

Hum, no.

Robbery and bankruptcy have completely different effects on society. That's why one is legal, and the other isn't.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#437

Post by marcosdumay »

MichaelBurge wrote: post #353
ryandrake wrote: post #108

Earlier quoted context omitted.

> But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly I don't know about "taken lightly" but bankruptcy and defaulting on a debt should not be something to be "ashamed" of, for an individual, a company, or a government. Default is an option specifically written into every debt contract out there. There should be no more shame in choosing to default as there would be f…

> If there was zero risk there should be zero premium. Suppose someone living the HN dream makes a bunch of money from his startup, and decides to pay off his mortgage. It might be structured as a loan from his company to himself, which then has zero risk. A bank processing an FHA loan has zero default risk, since the government steps in to pay them. And they often sell the loans to a government-run company anyways.…

> I guess the conclusion of your view is that: If people were more diligent about handling their money, banks wouldn't make as much risk-free money.

That's very likely the case. Although the real world does not like zeros and tries hard to push some complex high order effects that will be triggered before any zero is realized.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#438

Post by colefichter »

basseq wrote: post #421
ryandrake wrote: post #108

Earlier quoted context omitted.

> But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly I don't know about "taken lightly" but bankruptcy and defaulting on a debt should not be something to be "ashamed" of, for an individual, a company, or a government. Default is an option specifically written into every debt contract out there. There should be no more shame in choosing to default as there would be f…

There's a difference in perception between personal, corporate, and government bankruptcy. Personal bankruptcy is seen as a black mark of either poor personal discipline or a string of bad luck. Corporate bankruptcy is largely ignored, held up in rare cases as a source of embarrassment (but little else), or more often in startup-land, a signal of "experience". Government bankruptcy is something else entirely, and gen…

You make a really good point. HN seems to venerate startups that fail, which isn't very different from defaulting on a loan (and in many cases these startups are defaulting on loans as they shut down).

Yet, in any thread where Greece, Puerto Rico, etc come up there's this strong backlash against defaulting as being somehow immoral (as though it's not written into the lending agreements). What exactly is the difference between burning a bunch of VC money then shutting down and defaulting on a loan? In both cases we have an institution putting money at risk in the hopes of making a profit, and then losing it. I don't see the big moral difference here.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#439

Post by Ascetik »

bingomad123 wrote: post #53
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

Don't worry USA is on the same path.

yeeeeeup

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#440

Post by cbr »

e0 wrote: post #154
cbr wrote: post #139

Earlier quoted context omitted.

I'm pretty sure taking out a loan that you intend to default on is fraud, but making a contract with someone that you expect to be very profitable to you is not.

Who said anything about taking out a fraudulent loan?

I was responding to "There should be no more shame in choosing to default as there would be for choosing to exercise a stock option that causes your counterparty lose all his money." The idea is, if "default" were just a neutral acceptable option then we wouldn't think of it as fraud if you took out a loan that you planned to default on.
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